Limiting internet congestion a key factor in net neutrality debate

Too many vehicles on the highway inevitably slow down traffic. On the Internet information highway, consumers value high-speed Internet service, but there is little reason to think broadband traffic congestion will improve if the Federal Communications Commission abandons net neutrality, according to economic research.

In their paper, "The Economics of Network Neutrality," Ben Hermalin, Haas Economics Analysis and Policy Group, and Nicholas Economides, Berkeley-Haas visiting professor from NYU'S Stern School of Business, find that if Internet Service Providers known as ISPs initiate price discrimination in their pricing, a "recongestion effect" will occur. In other words, online delivery channels that are less congested at the onset of new pricing tiers will eventually become recongested when consumer behavior adjusts.

As the net neutrality debate continues, the study published in the RAND Journal of Economics (Vol. 43, No. 4, Winter 2012) provides a reminder of the potential fallout that multiple pricing might have on online traffic.

Hermalin and Economides use models to explore the economics of the current pricing regime known as "net neutrality," in which residential ISPs, such as ATT and Comcast, treat all content providers equally and don't directly charge them for the content they deliver to end users.

The models measure linear pricing versus price discrimination and compare the rate of congestion through the information pipeline between broadband providers and households under these different pricing strategies.

Linear pricing sets a fixed price for a product or service. Price discrimination is a pricing strategy that offers the same or similar product at different price points in order to maximize consumer demand or preference. For example, a type of breakfast cereal may come in two sizes: a small box for individuals and a large box for families. Even though the larger box of cereal may contain twice as much cereal, the price is not double the cost of the small box.

President Obama supports net neutrality but some ISPs continue to lobby the FCC to authorize "paid prioritization" or the creation of Internet "fast lanes" for those willing to pay more.

To better understand broadband congestion, consider Prof. Hermalin's hypothetical example of traffic on a real highway. If two of three lanes were reserved just for Mercedes Benz vehicles, drivers of Mercedes cars would enjoy a faster commute to and everyone else in the single remaining lane would be forced to slow down due to the added congestion. Predictably, Hermalin explains, more people would start buying Mercedes in order to take advantage of two lanes rather than one lane. The result? The two lanes that were previously less congested would recongest.

"Ultimately there is no real benefit because there is a fixed capacity on the highway," says Hermalin. "Likewise, the ISPs have a fixed amount of bandwidth to spread around unless they invest in more."

In the net neutrality debate, ISPs claim that in order to invest in more bandwidth, they need to charge content providers (Netflix, Amazon, etc.) either for streaming certain content or for facilitating content at premium speed. For years, the FCC has debated whether to alter the current system of a neutral network.

The findings also suggest that while consumers may be willing to pay more for faster service, if net neutrality rules were relaxed, eventually the larger economic fallout would be that people will try to spend less in reaction to increasing prices.

The FCC's authority to regulate Internet traffic is currently under appeal as broadband providers challenge whether providing Internet service is a utility subject to FCC regulation.

Researchers in Italy, writing in the International Journal of Technology, Policy and Management have demonstrated that net neutrality benefits content creator and consumers without compromising provider innovation nor profits.

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56 comments

Perhaps the assumptions are lame. Innovation routinely trumps simple models and obsolete technology. We haven't even begun to fight, or use distributed memory or distributed intelligence or Giga Hertz multi channel communication. Nah, no way near time to "Chicken little(Sky is falling" progress.

I'd call the ISPs bluff. Tell them fine to charging premiums and then let them know you're passing legislation that in order to use public infrastructure you're requiring that they reinvest 95% of the income gained off of their legalized gouging back into increasing bandwidth instead of putting it in their pocket.

That is, after all, just MAKING them do what they say they're already planning on doing...

Modern do your have any figures on public VS private investment in the internet infrastructure? It is my understanding that the majority of it has been paid for by private investment. Also, someone has to pay for the transmission of content. It either has to be the websites or the people who connect to them. On time data transmission is not free.

Re: Analogy of highways to broadband capacity: The Washington DC area beltway (I-495 & I-95 in Northern Virginia) had a rule that hybrid cars could use the High Occupancy Vehicle (HOV) lanes with only one driver vice 2 or 3 persons per non-hybrid vehicle. The HOV lanes soon became hybrid glutted. Latest measures use EZ-PASS cards & charge by traffic load in the same lanes for single and dual passengered cars, plus require a special EZ-PASS for free use with 3+ persons in a vehicle, earning the new name for HOV lanes "Lexus Lanes".

Internet is TCP/IP, and Lexus lanes in broadband is via routers with special congestion algorithms favouring selected IP sources. The rest of the crowd gets the leftover space in the pipe. Verizon & ATT are TELCOs, so they will use pricing for fixed volume privileges and burst rate overage, same as SONET/SDH, frame relay, etc. Comcast (years ago) required DOCSIS 3 (http://en.wikiped...e_modem) that can run separate traffic channels.

A better example is FedEx. Lets say I want to receive my package overnight, should I pay the same rate as people who are willing to wait 8 days for their shipment. If the VOIP and video content providers need priority service in order to sell their product they should pay for the priority. Video content providers like Netflix should provide two levels of service one with uninterrupted downloads and one with pauses. They could then afford to pay for a higher quality connection.

The only other solution to the problem is to charge at the other end, the internet subscriber. Fees would have to be based on speed and the amount of data downloaded.

"the larger economic fallout would be that people will try to spend less in reaction to increasing prices."

You say that like it's a bad thing.

The real issue is not the data it,s the effective sequential data rate.All bits may be the same, but it's the way they are assembled in space and time that are important.Let the markets decide, not the govt.

The bottlenecks exist at the webservers, not on the Internet backbone which has about 3% utilization and massive overcapacity in the form of dark fiber which could be lit and increase capacity 100 times. I mean to say that the limitation is the speed of the servers at content providers like Google and Netflix and the routers that aggregate traffic. The fiber backbone itself is limited only by the number of fibers to which Gbics are attached, and Gbics cost about $40 per fiber. Add to that some repeaters but most traffic is metro due to content providers caching and locating servers in metropolitan areas while the servers are linked with dedicated leased fiber: the INTRANET which is much, much less expensive being point-to-point

"The bottlenecks exist at the webservers, not on the Internet backbone which has about 3% utilization and massive overcapacity in the form of dark fiber which could be lit and increase capacity 100 times."

If that were true the people who own the dark fiber would be fighting for customers and setting up low cost sites away from congested areas. Server farms can be located anywhere there is electricity and cheap access.

It just occurred to me that I might really understand the problem here. Suppose that I am Netflix, my network provider is XYZ communications and I purchase all of the bandwidth I need from them in order to insure speedy on time delivery of content. If one of my subscribers gets their internet service from say ATT do I as Netflix have to also pay ATT to insure on time delivery of my content? Does my network provider have to pay them?

If this is the case I can see where the government might need to regulate this.

If that were true the people who own the dark fiber would be fighting for customers and setting up low cost sites away from congested areas. Server farms can be located anywhere there is electricity and cheap access.

Why should carriers fight for customers, MR166? They have a monopoly laying their dark fiber along USA railroad tracks. Customers must fight for those dark fibers or close business. All the carrier need do is wait because the customer's patronization is inevitable and guaranteed

Suppose that I am Netflix, my network provider is XYZ communications and I purchase all of the bandwidth

Netflix and Google build their own networks and use redundant routes to guarantee connectivity. Their bottlenecks are the last mile cable and DSL companies who act like a tollbooth, eying the riches of the content for surcharges and additional fee collection. They are like mafia thugs in your store extracting a cut of your 'action' in real time and add no value, only fear

"Why should carriers fight for customers, MR166? They have a monopoly laying their dark fiber along USA railroad tracks. Customers must fight for those dark fibers or close business. All the carrier need do is wait because the customer's patronization is inevitable and guaranteed"

So you think that it cost them nothing to lay that fiber and that they do not need to repay bank loans. I have news for you either they sell bandwidth on the fiber or they go bankrupt and the shareholders loose their investments.

@MR166 So you think that it cost them nothing to lay that fiber and that they do not need to repay bank loans. I have news for you either they sell bandwidth on the fiber or they go bankrupt and the shareholders loose their investments.

Yes it is almost nothing. For example when Gazprom lays pipe to Germany they lay fiber optic cable in trench in case somebody decided to use it later. Later they can add the repeaters and infrastructure, paid for by the customer. Note that the government is giving them a public resource for their private exploitation. You have the situation exactly backwards. It is you paying for the dark fiber by your government issuing a noncompetitive monopoly to some university frat brothers. They don't go bankrupt. They lobby politicians with all the free money you give them. You may go bankrupt funding their lobbying and extravagant gifts as influence peddlers

Shareholders speculate on the open market. Most of their loss is bubble bursting

It just occurred to me that I might really understand the problem here. Suppose that I am Netflix, my network provider is XYZ communications and I purchase all of the bandwidth I need from them in order to insure speedy on time delivery of content. If one of my subscribers gets their internet service from say ATT do I as Netflix have to also pay ATT to insure on time delivery of my content? Does my network provider have to pay them?

If this is the case I can see where the government might need to regulate this.

It just occurred to me that I might really understand the problem here. Suppose that I am Netflix, my network provider is XYZ communications and I purchase all of the bandwidth I need from them in order to insure speedy on time delivery of content. If one of my subscribers gets their internet service from say ATT do I as Netflix have to also pay ATT to insure on time delivery of my content? Does my network provider have to pay them?

If this is the case I can see where the government might need to regulate this.

When telecoms lay down fiber, they always lay more than needed because the most expensive part is digging the trench.

Why?

Because the telecoms are trying to make the content providers buy more access to every one of them by restricting network-to-network traffict.

Let's say a content provider needs bandwidth B. The content provider purchases this much bandwidth spread between the local ISPs and trusts that they will route traffic through to others for redundancy. The ISPs start to throttle the traffic to/from other networks, forcing the company to buy more from each than the amount B that is technically needed.

Consider there are hundreds of ISPs in different states/countries; the content provider just can't reach them all, so the smaller ISPs are left without the contents and lose customers.

So the ISPs profit in two ways, more payments, less competition - and in the end the customers pay it all

Selena

It's kinda like the power grid. When everything is connected, you don' t need to have the peak amount of generating capacity needed at every location - just the average - and the grid will let you get electricity from elsewhere where there's spare capacity available.

But if the state grid utilities deliberately cut their interties, that would force the power plant operators to build more powerplants in each state, and pay money to each state utility to connect them up.

Fortunately the analog isn't perfect, because the utility is also the customer for the power, so they would just be cutting off their own supply. On the internet, that's not the case - the ISP doesn't sell data like utilities sell electricity, so they stand to profit from essentially breaking the internet and forcing the content producers to invest more money into delivery.

Selena

It's NOT like a power grid.Some data, like video, must arrive within a certain time, unless you want to download the video first and not stream it. A premium price to grantee data arrives on time is appropriate.The better analogy is FedEx. If you want a package by a certain time, you pay extra.Other data, like this message, can take its time time getting back to the physorg server.

Selena

Dec 11, 2014

This comment has been removed by a moderator.

Selena

But the size of the pipe is only so big. If you want streaming video on time, you need more wires/fiber ...a bigger data pipe.Customers who need high speed/volume data buy their own T1 (or better) line.Users are spoiled and now demand the govt pay for what they have been getting for free.This is why signs are posted at Yellowstone to not feed the bears. When you run out of food, the bears attack.The industry: ISP, content providers, have been pushing 'free' video content with paying much extra for it. There are limits to capacity if you you want more, someone has to pay.

From what Selena is saying, he/she doesn't seem to appreciate the analog part of the piping data around the world. The size if a fiber, a coax cable, ...is limited. It's called physics.

Some data, like video, must arrive within a certain time, unless you want to download the video first and not stream it.

TCP/IP cannot guarantee the timely delivery of any data. It can't even guarantee the packets arrive in the correct order as they are sent. It's not how it was designed to work.

But the size of the pipe is only so big. If you want streaming video on time, you need more wires/fiber ...a bigger data pipe.

This is a problem only because the ISPs have oversold their bandwidth with such a great margin. The congestion is not due to the users, but due to the ISP who built the network under the assumption that nobody would ever use the bandwidth they sold.

Users are spoiled

Rather, they're the victims of false advertizement. Every ISP sold them high speed DSL connections and cables in the full knowledge that they cannot provide the level of service they are selling out at the prices they are putting out.

"Verizon deliberately moves back and forth between regulatory regimes, classifying its infrastructure either like a heavily regulated telephone network or a deregulated information service depending on its needs. The chicanery has allowed Verizon to raise telephone rates, all the while missing commitments for high-speed internet deployment."

Rather, the users were sold a certain amount of bandwidth, and paid a certain amount of money for it, and now they're simply demanding that the ISPs stick to their end of the deal.

The ISPs would see their profits decline if they put the money into improving their networks, so instead they opt to lobby the government for rules that would allow them to extract more money out of their customers.

Mind, the content providers and the regular internet users are the same kind of customers in regards to the ISP. Both are buying the same service - network bandwidth - just in different amounts. I can start filling up the upstream bandwidth I bought streaming gaming videos all day long, and that's within the contract I'm already paying for.

It's the ISPs fault they sold it to me, and not my duty to pay more so they can deliver.

This is a problem only because the ISPs have oversold their bandwidth with such a great margin. The congestion is not due to the users, but due to the ISP who built the network under the assumption that nobody would ever use the bandwidth they sold.

More exactly they are cheap criminals who connect all the DSL modems in San Jose into a single 10mbps uplink. This is because a typical customer has about 0.2% usage of bandwidth on average. So an ISP can connect hundreds of customers together onto the bandwidth they advertise for EACH customer. When customers can't see a major event simultaneously, for example the Olympics, the ISP will simply blame the carrier

The ISPs would see their profits decline if they put the money into improving their networks, so instead they opt to lobby the government for rules that would allow them to extract more money out of their customers.

It just occurred to me that I might really understand the problem here. Suppose that I am Netflix, my network provider is XYZ communications and I purchase all of the bandwidth I need from them in order to insure speedy on time delivery of content. If one of my subscribers gets their internet service from say ATT do I as Netflix have to also pay ATT to insure on time delivery of my content? Does my network provider have to pay them?

If this is the case I can see where the government might need to regulate this.

Why?

I am not in favor of charges for the delivery of content to the end user on a per originator basis. The ISP of the originator can charge the originator what they want and the ISP of the end user can charge the end user what they want. The end user ISP can also charge the originator ISP for delivery of their packets. In other words the end user's ISP should not be able to charge an originator special rates.

Customers who need high speed/volume data buy their own T1 (or better) line.

Here's the problem: the ISP will happily sell you a T1 line, and happily accept your money for it.

But they will do nothing to the network backbone that leads up to the routers to which your T1 is connected to. The added bandwidth usage is causing network congestion, so they come back to you with hand over fist demanding more money for a "fast lane" through the blocked up network.

If you pay up, do you think they have any incentive to un-block the network by adding more capacity to the backhaul? Of course not - that would mean you no longer have to pay them extra.

In this way, by breaking network neutrality, they're trying to create artifical scarcity on the network to extract more money out of customers. It's the same reason why, when DSL came around the first time, ISPs refused to upgrade their networks because the analog modem users were still paying by the minute.

Eikka if you look at the profit margins of the ISPs I think that you will find that they are not out of line!

It costs a HUGE amount of money to manage a network and keep the equipment up to date.

Most of those costs are one-time non-recurring costs like laying down a fiberoptic cable, or buying a rackful of new equipment. Furthermore, the ISPs are deliberately hiding their true costs by accounting for "tax planning" purposes anyhow. You can bet on it. The money counted as expenses is being bled from the company into owner pockets through affiliates.

It's similiar to how large co-op grocery store chains keep bleeding out their profits by continuously building new outrageously large shopping centers instead of paying their customer-owners the dividends they joined in for. If you have a store bonus card, that's the reason why your bonuses are 0.5% on the purchase.

@MR166 The usable lifetime of networking equipment is very short. Technology updates makes the equipment obsolete very quickly.

Wrong. Dark fiber sits in the trench for decades waiting for first light. Telephone cables in major cities may be a century old yet they carry DSL and T1 signals. Moreover once a cable is laid in conduit it is easy to attach much more cable, pull out the old while replacing it simultaneously with new

"How can a packet of data be identified to be from Netflix?" More than likely by the originating IP address.

"If it can be identified, the equivalent is FedEx priority shipping rates." Yes and no. There is a big difference between providing an express service and purposely slowing down a companies packets in the regular service to force them to move to express.

purposely slowing down a companies packets in the regular service to force them to move to express.

If express service is paid for, and it is not delivered, there is a case for violation of contract and/or fraud.

I mail a first class letter and if the mail isn't too busy it may arrive in a day or two. If busy, 4 or 5 days. If I want guaranteed next day, I pay for it with proof of delivery.The US govt still protect USPS by banning completion for first class mail. In the mean time, UPS, FEDEX have been innovated.

If Netflix wants guaranteed delivery, their customers must pay. Govt forcing/protecting ISPs to be the Post Office will only slow innovation.

@MR166 "If it can be identified, the equivalent is FedEx priority shipping rates." Yes and no. There is a big difference between providing an express service and purposely slowing down a companies packets in the regular service to force them to move to express.

Actually, they are exactly both the same system callesd QOS. You make a false distinction

"Actually, they are exactly both the same system callesd QOS. You make a false distinction"

@MR166 So let me get this straight, this whole net neutrality issue is not a real concern and all content suppliers are being treated equally?

No, ISPs have too much free time to examine user data with deep packet inspection and devise new, baseless charges. For example if I know you are making an important phone call to your mother, I may dynamically charge more for that particular phone number or drop your calls if you fail to pay.

The problem is that rather that improving speed, ISPs can acheive a similar appearance of improvement by merely making some services look worse than others with QOS. If your telephone calls are always clear, but your web pages take a minute to load, you may be fooled into thinking that half the network has been modernized when in fact I just made one better at the expense of making the other much worse. The network remains neglected

"The problem is that rather that improving speed, ISPs can acheive a similar appearance of improvement by merely making some services look worse than others with QOS."

I don't think that you really understand how much traffic on the internet has increased since the days of the 400 baud modem. Each increase in speed and traffic required new equipment and made the old stuff obsolete dumpster material. To say that the ISPs are not investing tons of money in new equipment is disingenuous.

"The problem is that rather that improving speed, ISPs can acheive a similar appearance of improvement by merely making some services look worse than others with QOS."

I don't think that you really understand how much traffic on the internet has increased since the days of the 400 baud modem. Each increase in speed and traffic required new equipment and made the old stuff obsolete dumpster material. To say that the ISPs are not investing tons of money in new equipment is disingenuous.

Peering is not a flat equipment investment. It is an ongoing cost, requiring staff and payments to others for big pipes and bandwidth. To conflate that ISPs will spend more money to improve their customer's experience instead of lobbying Washington to milk their customers is to leave all these lobbying efforts unexplained

ISP's gain more by spending in Washington then investing in their own business. Building better tollbooths does not enhance profits. Raising fees does

Cable, ATT and Verizon all have spent huge amounts of money upgrading their "Last Mile" services. Every advance in cross country fiber bandwidth requires new equipment. Security requires lots of man hours and costs a fortune for trained personnel.

Someone has to pay for this. The ISPs profit margins are not all that high when you consider the risks involved since technology advances could make all of their equipment obsolete overnight.

Cable, ATT and Verizon all have spent huge amounts of money upgrading their "Last Mile" services.

True. They use some of their untold treasure acquired while servicing endpoints with vastly outdated infrastructure and vastly overinflated prices. While Americans paid $15/mo for obsoleted DSL modems, South Koreans got 100megatbis for the same price

Every advance in cross country fiber bandwidth requires new equipment.

No, cross country requires only lighting up dark fiber which lays fallow in the trench for decades. Cross country can carry data representing millions of customers, so the cost per customer is infinitesimal. Also, ISPs do not build cross country connections as they are regional. They leave large distances to the carriers. So your statement is fallacious

Security requires lots of man hours and costs a fortune for trained personnel.

ISPs do not implement security. They simply pass the attacks to you, unfiltered. Hence you must fund security/men

Koch you have managed to form some very strong opinions about something that you obviously know very little about.

Oh really. Well I can name names of the Internet leaders (and losers) who know my face while you can just try to collect some pocket change from your corporate handlers for yet again losing your argument, loser

"Why should carriers fight for customers, MR166? They have a monopoly laying their dark fiber along USA railroad tracks. Customers must fight for those dark fibers or close business. All the carrier need do is wait because the customer's patronization is inevitable and guaranteed"

So you think that it cost them nothing to lay that fiber and that they do not need to repay bank loans. I have news for you either they sell bandwidth on the fiber or they go bankrupt and the shareholders loose their investments.

In the grand scheme, yeah, it costs little for them to lay dark fiber, save for the cost of the fiber and the mux/demux at the end points: the labor is the same whether OC1, 3, 12, 48 or 255 is being lain.

AT&T, Verizon (a.k.a. GTE and UUNET), Sprint, XO, L3 and a myriad of others are Tier 1 / backbone providers. Banks take out loans to buy bandwidth from them, not the other-way-around.

And yet ATT and Verizon play the role of the injured party. The poor ISP starving for bandwidth because CARRIER RATES ARE TOO HIGH. Even while they themselves are the carrier. They also have all the inbound traffic so they can sell the outbound FOR NOTHING to colocation facilities and be paid TWICEOVER for the same data pipe. They then use all this cash to lobby politicians to increase rates and restrict service

Face it Koch this argument is just about any big nasty corporation making money. I am sure that you clone the same argument and use it against big oil or coal or gas. I know, the people should own everything and give it away for free.

Several yrs ago, I used Nero 7 software (CD from store) on my Win-XP PC. Nero updates online several times with their releases before creating a new release, and I used Comcast (CC) as my ISP. At first, my downloads went smoothly for about 180 MB, After about three months, my downloads would start fast and then speed would drop so low that the download never finished. I found this to be true for any site I visited with a large download. I wrote a note (published) to the New York Times (NYT) complaining because I could not trust CC to let me download (buy) the next release. It turned out that Nero was not in the fast lanes and CC was preventing large downloads. As a result I did not buy any more Nero products because I could not get updates. A big stink occurred after that and CC (never admitting their crime) allowed big file downloads to complete.By then Nero had lost my business because of my ISP. CC now buys full page adds in the NYT lying about their NET Neutrality.

DUH!

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